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Labor's New Face In Europe

December 15, 1996

The Workplace: UNIONS

LABOR'S NEW FACE IN EUROPE

Can these leaders deliver on needed cuts in pay and benefits?

`Traitor!"

"You b----, you don't belong in the street!"

Insults flew fast and furious, as the petite, blonde labor leader marched with tens of thousands of striking workers in Paris in mid-October. Head held high, staring straight ahead, Nicole Notat took the heat for four hours from workers angered by her support of government welfare reforms. When the 49-year-old head of the 640,000-strong French Democratic Labor Confederation was heading back to her car, things got even hotter: A crowd of strikers chased after her, hurling beer cans as she sped away. She told reporters grimly: "This will not stop my determination."

Notat is called French labor's "Iron Lady." Yet she shows her tough side as much to her own union members as to the managers and government officials she deals with. The former schoolteacher is one of a handful of leaders struggling to drag Europe's labor movement into the late 20th century. From Britain to Italy, these leaders have traded beat-up leather jackets for crisp business suits. They've dropped left-wing ideology for a muted tone more acceptable to industry and government leaders.

COLOSSAL TASK. Above all, this new breed has recognized that the global economy has changed forever the role of Europe's unions. If unions are to survive, these leaders realize, they can no longer push for the ever-higher wages and benefits they have demanded for the past 20 years. Instead, workers will have to accept cuts in their safety net, while unions find new ways to boost productivity. "The union agenda should be competitiveness, and making things smarter and more efficiently," says John Monks, 51, who heads Britain's Trades Union Congress.

That sounds good, but can these leaders deliver on such a colossal task? Europe's wages are far higher than those in Asia and Central Europe, where many manufacturing jobs are heading. Expensive fringe benefits make European workers a bad bargain compared with their U.S. counterparts. In the best case, these reformers may only slow Europe's hemorrhage of industrial jobs while improving the climate for hiring workers in service and high-tech businesses. It may take an even deeper crisis before most European unions agree to sweeping change.

Business welcomes the first signs of labor moderation but wants more. "There is a serious attempt on the part of unions to address cost problems," says David J. Herman, CEO of Adam Opel. Adds Werner Stumpfe, head of Germany's Gesamtmetall employer federation: "I sincerely hope we've entered a period of radical change."

But even these first efforts at change are putting the new crop of labor leaders in a politically touchy position. Workers in France, Germany, and Italy have recently walked out to protest cuts in health-care spending and other welfare reforms. The moderates are caught in the difficult role of mediators. They must explain the need for reforms to their own workers--and to other labor leaders. If they get too far ahead of the rank and file, they run the risk of losing their credibility.

BROAD VIEW. The most prominent among the new risk-takers are Notat, Monks, Italy's Sergio Cofferati, Spain's Antonio Gutierrez, and Germany's Hubertus Schmoldt. College-educated and in their 40s and early 50s, most have a broader world view than earlier generations of labor leaders. Most important, they rose to the top of their unions after Europe's industrial struggles of the 1960s and '70s, which forged the hardline stances of their labor-leader predecessors. Europe's labor pragmatists have left "all the crazy radical Marxist stuff" behind them, says Richard B. Freeman, a labor expert at the London School of Economics.

WELFARE SURGERY. Take Cofferati, head of Italy's 3.3 million-member Confederazione Generale Italiana del Lavoro (CGIL). The 48-year-old former communist is pushing for a streamlined welfare state. Not long ago, Cofferati opposed government efforts to overhaul Italy's expensive pension system because such a move would mean rolling back worker benefits.

Eventually, however, Italy's budget crisis changed Cofferati's mind. Last year, he hammered out a compromise plan with the government that raised the official retirement age by five years, axed special benefits for government workers, and allowed private pension funds for the first time. Cofferati's backing helped seal the deal, despite opposition from other labor leaders. "We need a reform of the welfare state," Cofferati argues. "The big problem is jobs."

Although a lifelong socialist, Notat, too, wants welfare surgery in France. When Alain Juppe came to power in 1995, she began to build rapport with his Cabinet ministers. Sensing their willingness to tackle France's deficit-ridden health-care system, she lobbied to spread health-care taxes across a broader section of the population, without slashing worker benefits. Now Notat is pushing for further reforms, despite the opposition in her own ranks. "You can't wait until there's complete unanimity to move forward," she says.

As if coping with nearly bankrupt governments weren't enough, the labor moderates are also trying to boost industrial efficiency. One pioneer is Hubertus Schmoldt, 51, the head of IG Chemie. An opponent of "narrow, corset-like rules," he was one of the first in Europe to introduce the flexible workweek, in 1990. It allows companies to vary the length of the workweek from 35 to 40 hours. That helps companies vary output without paying overtime as long as the average week equals 37.5 hours for the whole year.

The approach has spilled over into other industries. At Adam Opel's Bochum plant, for example, employees agreed to work from 30 to 40 hours a week with no overtime as long as the average is 35 hours. The plan could help cut Opel's labor costs by 10%.

Schmoldt knows that more must be done to counteract Germany's labor cost disadvantage. So IG Chemie allows companies to pay first-time employees 10% less than their co-workers for a year. He's also permitting factories in fiercely competitive industries such as tire making to work on weekends. That's a big shift in a nation where plants typically shut down early on Friday. Meanwhile, IG Chemie and other unions in France and Italy are easing away from industrywide "pattern" contracts. Increasingly, bare-bones national deals set guidelines for wage hikes, while companies negotiate the details.

WORKER-OWNERS. The problems of Europe's heavy industries are long-standing. A new and potentially bigger test for unions comes as Europe deregulates its remaining cartels. In service industries such as telecommunications and airlines, many companies aren't prepared for the vicious competition. Workers are facing the choice of compromising on wages and benefits--or losing their jobs.

Such a dire decision confronted workers at Alitalia, Italy's state airline, last June. The company was close to collapse when its unions agreed to create an employee stock-ownership, one of Italy's first. In return for $1 billion in labor-cost reductions, Alitalia will give employees up to 20% of its outstanding stock. "We had to totally rewrite the rules," says Alitalia Chief Executive Officer Domenico Cempella.

PRICEY LAYOFFS. The prospect of mounting joblessness remains the biggest worry of Europe's union leaders. Europe's unemployment averages 11% but ranges as high as 22% in Spain. Now, some unions are relaxing the rules that make layoffs expensive. In Spain, for example, union chief Antonio Gutierrez backed a groundbreaking reform earlier this year at auto parts maker Estampaciones Sabadell. Should sales dip 20% or more, the company can now lay off up to 75 of its 450 workers with only modest severance payments. Usually, companies must pay tens of thousands of dollars to each worker.

Such arrangements would have had Gutierrez' union-leader predecessors pounding their fists. But Gutierrez, head of the former communist union federation Comisiones Obreras, says unemployment means that other companies should adopt such deals. They "reduce insecurity," he says.

Europe's labor chiefs are sure to feel uncomfortable as they continue to walk a fine line between leading their members and alienating them. But they agree that guarding the status quo would be riskier yet, causing even more jobs to flee Europe and undercutting faith in the labor movement. "That just won't work," says IG Chemie's Schmoldt. For Europe's workers, it's now a choice between the leaders with business suits and those with leather jackets.By David Woodruff in Bonn, with Stanley Reed in London, John Rossant in Rome, Andy Robinson in Madrid, and Mia Trinephi in ParisReturn to top